I think it’s safe to assume, that with less than a week left in 2022, this year will turn out to be one huge lump of coal for most financial asset classes. We didn’t anticipate this carnage 12 months ago, because the Federal Reserve had yet to begin clamping down on the money supply back then- cause you know; why would they- inflation was only ‘transitory”.
Transitory, my A#$!! Inflation was about as transitory as Wilt Chamberlain was monogamous! Everything from oil to olives has increased in price this year, by orders of magnitude BTW. What does ‘Transitory’ mean anyway? Oh, it’s one of their code words to make you think that since they defined it, they will conquer it. Hah!
Wanna know why Real Estate Investing is a great hedge against this “transitory Inflation”, read this great post over at CoachCarson.com
Like most investors, my stock portfolio dropped in value by 15% or more this year, thankfully though, the nearly $14,000 in dividend payments I received, helped soften the blow.
I do have to be grateful though, since I discovered a silver lining in my overall net worth, which paints a rosier picture for 2022, and should get even better with time. I discovered that my rental real estate equity position increased by $62,964.11 this year.
How to discover your real estate equity position.
From my vantage point, the equity in my properties grew by the simple fact that my tenants assisted me in decreasing my loan balances by $26,935.11 this year. It’s like we’re a team, all working together in unison to get those balances down. Thanks Team!
On top of that, the difference between what I owe, and what the market value of each property is, in my estimation grew by $36,029.11, Yea team!
Now, I’ll admit the latter number is a bit shall we say, subjective. It’s based on the estimated market value per square foot of ‘comps’ in our local market.
But the simple fact is, as my tenants and I work in tandem to pay those notes down, and comparable ‘comps’ increase in value (or stay the same), then my Real Estate Equity Position will increase each year.
Here is an illustration of my real estate equity position by each property.
As you can see, the principal paydown for Rental 1 & 2 decreased by $10,883.14 or 4.88% in 2022. The more ‘seasoned’ the loan gets over time, the more of the payment gets applied to ‘principal’, and less applied to ‘interest’.
My combined #1 & #2 property mortgage payment is $1880.56 per month. In January of 2022 the amount of my payment applied to principal was $946.14, but by December it had increased to $1019.97 which is an increase of 7.8%.
All in all, my real estate equity position has increased 16% in 2022.
While this 16% increase is not considered ‘liquid wealth’, meaning I cannot march down to the bank, stick an ATM card in the machine and proceed to get 100 dollar bills for this amount. As you probably know, It’s more complicated than that.
If you want to help me track the Equity Position for all my properties, join my Fan Club:
But, there is another way to get $100 bills in lieu of one’s equity position, if that was what he/she wanted.
Using a HELOC to liquidate your Real Estate Equity Position.
If I were to go to the bank with this equity position and apply for a HELOC (Home Equity Line of Credit), I would likely qualify. Having a Line of Credit on demand is very valuable to a real estate investor, and if it’s never used then you don’t pay interest or any fees to keep it open.
The ability to have access to immediate capital is extremely important to a real estate investor looking to grow his/her portfolio. Immediate access to capital provides leverage.
Say for instance, I was at a property auction and wanted to bid on a house or a parcel of land, but it would require an outlay of a large amount of cash immediately, if I were to be the highest bidder.
Knowing I had access to that HELOC in my back pocket is leverage over other buyers who may not have that access to capital. Immediate access to capital may afford me to negotiate a more favorable bid.
If my increased equity position was the only net wealth increase of the year, would it be considered a good year?
Well to answer my own question, that is kinda how the chips look like they’ll fall this. So, I guess I’m trying to recognize the positive in an otherwise dismal financial year.
On the bright side, at least the Fed’s monetary policy hadn’t negatively affected the values of my properties, and hopefully, yours as well. Perhaps 2023 will be a better year for all of us.
Educating others to recognize their positive equity position.
In the beginning of my Real Estate Investing Journey, it was hard to recognize the ‘potential future value’ when all the struggles with being a landlord were happening today, and consuming you.
We have a tendency to measure ‘value’ only in monetary terms, but sometimes ‘value’ shows itself in a different medium. Like recognizing the value of business relationships, or the value of knowing what to avoid in the future, or the ability to recognize the value of what other people find valuable.
With Real Estate Investing, It seems to force you to recognize these ‘ancillary value adds’ and to not focus as much on what value it’s returning right now.
Real Estate investing is a long-term game, and self-management of rentals is not for the faint of heart. You’re called to wear a lot of hats, you’re forced to make decisions that could even bring you to tears.
But in the end, if you stay with rental property investing long enough, it will improve your equity position, and if done correctly, will provide generational wealth.
Happy Holidays everyone, here’s to looking forward to a bright and profitable 2023!